Vermont rebuilds while Congress fights

The state of Vermont is struggling to gather funds to repair the flood damage from Hurricane Irene, the state’s worst natural disaster since the floods of 1927. Generally the state would rely on support from the federal government to replace and repair this infrastructure, but the U.S. Congress is locked in a fight over funding the Federal Emergency Management Agency as part of a larger fiscal battle that could shut down the federal government. From CBS News:

Congress is headed for a showdown over disaster relief funding that could bring the government to the brink of a government shutdown again.

House Speaker John Boehner has scheduled a vote tomorrow on a bill that would keep the government operating through Nov. 18. If the Senate and the House do not approve the stopgap measure, known as a continuing resolution, before the fiscal year ends Sept 30, the government would be forced to shutdown.

The House bill includes $1 billion in immediate funding for the Federal Emergency Management Agency and $2.65 billion for next year, but the Republican measure also includes a provision to offset the FEMA funds with cuts to the Energy Department’s Advanced Technology Vehicles Manufacturing Loan Program.

Meanwhile up north Vermont is scrambling to make repair funds available from a variety of sources. VTDigger.org reports:

In the meantime, the state [Vermont] is setting up loan programs to ensure that communities aren’t tapped out as they wait for federal reimbursement money.

Vermont banks, the Vermont Municipal Bond Bank and the state Treasurer’s Office announced a financial assistance package to help ease the financial stress on municipalities as they rebuild over the coming year.

The state will advance $24 million in payments that are already slated for town highway aid ($6.2 million), current use ($12.3 million) and payment in lieu of taxes ($5.8 million).

Local banks will “immediately” open lines of credit worth several hundred thousand dollars to millions of dollars to cash-strapped municipalities. In the event that a municipality reaches the lending cap, the originating bank will turn to a “loan pool,” in which other banks offer more capital.

In the short-term, banks that have exhausted other avenues can turn to the Vermont Municipal Bond Bank for cash to meet short-term municipal needs, according to John Valenti, chair of the bond bank board.

I think the lesson here is that states need to plan for less support from the federal government for emergency funding, or at least have back-up plans in place to tide themselves over. Imagine if this crisis had happened in Illinois, a state with limited borrowing capacity which doesn’t have enough cash to cover its current payables. I suppose the repair work would have to wait until members of Congress fought their ideological battles. Battle by battle we are seeing the federal structure weaken. The states must strengthen themselves.

New York Times hot on Cuomo bank

The New York Times has an interesting story today about former New York governor Mario Cuomo serving on the board of a bank-holding company which is seeking approval from the Federal Reserve to purchase a Long Island bank. The Times is concerned about the potential conflict of interest of the bank making loans to New York local governments that also have business pending in front of Governor Andrew Cuomo, the former governor’s son. These concerns are legitimate but probably unwarranted because the Municipal Securities Rulemkaing Board recently ruled that bank loans to municipalities are municipal securities and must follow MSRB rules. I wrote on September 12th in Muniland:

In a groundbreaking announcement, the Municipal Securities Rulemaking Board (MSRB) has advised municipal bond market participants that many “bank loans” currently being structured for state and local governments are likely to be classified as municipal securities, even though these “bank loans” are often being privately placed.

These rules are extensive and would particularly apply to James Runko, who is listed on LinkedIn as the Senior Vice President of Municipal and Secured Lending at First National Bank of New York. Mr. Runko lists his history as a “Finacial Advisor For Tax-Exempt Bond Issuers,” meaning that according to new MSRB rules, he would be barred from advising a municipality on a muni loan/bond issue and then switching hats and having his bank fund the loan.

This story highlights the deep pockets of influence that grip our local and state governments. Former politicians leave office and lobby for for special interests seeking advantage in the affairs of government. Sunlight must be everywhere on these issues, and strong regulators must ensure fair dealing and transparency.

Investment News reported yesterday that the SEC is expected to backtrack on muni rules. This is no time for the SEC to lighten up on the oversight of the municipal markets. If anything it’s time for more oversight.